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Tuesday, 20 May 2014

THE WORLD AFTER BIG DATA: What the digital revolution means for us

By Dirk Helbing (ETH Zurich)

Never before
were politicians, business leaders, and scientists more urgently needed to
master the challenges ahead of us. We are in the middle of a third industrial
revolution. While we see the symptoms, such as the financial and economic
crisis, cybercrime and cyberwar, we haven't understood the implications well.
But at the end of this socio-economic transformation, we will live in a digital
society. This comes with breath-taking opportunities and challenges, as they
occur only every 100 years.

Big Data: a
magic wand. But do we know how to use it?

Let me start
with Big Data. When the social messaging portal WhatsApp with its 450 million users was recently sold, 19 billion
dollars were made -- almost half a billion dollars per staff member. Big Data
is fundamentally changing our world. It is becoming the new oil of the 21st
century, and we need to learn how to drill and refine it, i.e. how to produce
data and turn them into information, knowledge and wisdom.

The
potential of Big Data spans across all areas of society. It reaches from
natural language processing over financial asset management, to smartly
managing our cities and better balancing energy consumption and production,
thereby saving energy. It allows for better protection of our environment, risk
detection and reduction, and the discovery of opportunities, which would
otherwise be missed. It will be possible to tailor medicine to patients, thereby
increasing drug effectiveness while reducing side effects. Preventing diseases
may become even more important than curing them.

Big Data
applications are now spreading like wildfire. They enable personalized offers,
services and products. Big Data open up entirely new possibilities for process
optimization and allow one to identify unexpected interdependencies. They also
imply great potentials of evidence-based decision-making, but science will be
crucial to ensure transparency, quality, and trust. Science will also be
important to drive ethical ICT innovations and to avoid the pitfalls of Big
Data applications. Therefore, science must become a fifth pillar of
democracies, besides legislation, executive, jurisdiction, and the public
media.

What's the next big thing after Big Data?

But we need
to think a step ahead and realize that we are just at the beginning of a
transformation process, which is about to change human history. The invention
of the steam engine turned agricultural society ("economy 1.0") into
industrial society ("economy 2.0"), and wide-spread education turned
it into service society ("economy 3.0"). Now, the invention of
computers, the Internet, the World Wide Web, and Social Media are transforming
service societies into digital societies ("economy 4.0").

With
computers reaching the level of human brainpower in about 10 years, with
intelligent service robots, and the Big Data tsunami, 50 percent of jobs in the
industrial and service sectors will probably be lost within the next 20 years.
And most of our current ways of doing things will fundamentally change: the way
we educate (MOOCS – Massively Open On-line Courses – and personalized education), the way
we do research (Big Data analytics), the way we move (self-driving Google cars) or transport goods
(drones), the way we go shopping (take Amazon
and eBay), the way we produce (3D
printers), but also our health system (personalized medicine), and most likely
politics (participation of citizens) and the entire economy as well (with the
makers community, the emerging sharing economy, and prosumers, i.e.
co-producing consumers). Financial business, which used to be the domain of
banks, is increasingly replaced by algorithmic trading, Paypal, Bitcoin, and Google Wallet, etc. Moreover, the
biggest share of the insurance business is now in financial products such as
credit default swaps. Even wars may increasingly change from conventional wars
to cyberwars.

Thus,
how will the digital revolution transform our societies?

First of
all, the transition will be challenging. Today's world is struggling with
financial instabilities, and in many areas of the world, we are faced with
social and political unrest -- sometimes framed as "Twitter revolutions". Thus, how can we handle this? Do we need
more state power, based on armed police and mass surveillance? Could a giant
supercomputer (or network or cloud of supercomputers), fueled with massive
amounts of data about human activities and almost everything, simulate our
globe? Could a supercomputing infrastructure like this optimize and plan our
world? Could it avoid the traps of particular interests, irrationality, and
emotional decision-making? Could it find ways to overcome coordination and
market failures, breakdowns of cooperation, and conflict? Could it take better
decisions than we could do? And should it determine our actions through
personalized recommendations and selective information that smartphones or
other gadgets deliver to us?

To some or
even many of us, this seems plausible, but this concept, known as
"benevolent dictator" or "big government" cannot work.
While the processing power doubles every 1.8 years, the amount of data doubles
only every 1.2 years. Unfortunately, the complexity of networked systems is
growing even faster (see figure above). In other words, attempts to optimize
systems in a top-down way will be less and less effective – and cannot be done
in real time. Paradoxically, as economic diversification and cultural evolution
progress, a big government approach would increasingly fail to lead to good
decisions. However, neither is simplifying our world by homogenization and
standardization a solution – since it reduces innovation, societal resilience,
and the happiness of people in general. Today, everyone already complains about
over-regulation, and we can no longer pay for the expensive institutions needed
for it. Most industrialized countries have reached historical heights in public
debt levels in the order of 100 to 200 percent of their annual productivity.
Nobody knows how we should ever be able to pay for this – and for even more
regulation.

But what
alternatives do we have?

The logical
answer is: distributed (self-)control, i.e. bottom-up self-regulation, as
envisioned by Adam Smith's paradigm of the invisible hand. While this vision
was often not working well in the past due to coordination and market failures,
cybernetics (i.e. control theory) and complexity theory tell us that it is
actually feasible to create resilient social and economic order by means of
self-organization, self-regulation, and self-governance. The work of Nobel
prize winner Elinor Ostrom and others has demonstrated this. By "guided
self-organization" we can let things happen in a way that produces
desirable outcomes in a flexible and efficient way. One should imagine this
embedded in the framework of today's institutions and stakeholders which,
however, will learn to interfere in minimally invasive ways.

How will such
self-regulation work?

In a rapidly
changing world, which is hard to predict and plan, we must create feedback
loops that enable systems to flexibly adapt in real time to local conditions
and needs. Now, 300 years after Adam Smith's historical vision, we can make it
happen, fueled by real-time data. For example, my research team has invented
self-regulating traffic lights, which are driven by the traffic flows and can
outperform the classical top-down control by a conventional traffic center. Can
we transfer and extend this principle to socio-economic systems? Indeed, we are
now developing mechanisms to overcome coordination and cooperation failures,
conflicts, and other age-old problems. This can be done with suitably designed
social media and sensor networks for real-time measurements, which will
eventually weave a Planetary Nervous System. Hence, we can finally realize the
dream of self-regulating systems, and there is now a quickly increasing number
of examples for them: Bitcoin, peer
to peer lending, Google's
self-driving car, Uber's limousine
service, collaborative robot swarms, and social communities on the Web.

A new kind of
economy is born

A largely
self-regulating society isn't utopia. In fact, a new kind of economy is already
on its way. Social media are networking people and, thereby, enable
"collective intelligence." This paradigm is superior to the
self-regarding optimization by the "homo economicus", the egoistic
decision-maker assumed in mainstream economics ("economics 1.0").
While the bottom-up self-organization of the "homo economicus" can
outperform top-down decision making in complex environments, highly competitive
conditions can lead to coordination failures and poor outcomes (for example,
"tragedies of the commons" such as environmental degradation). It has
been theoretically and empirically shown, however, that a considerable fraction
of people has other-regarding preferences -- I will call this type "homo
socialis." To understand the decisions of this type, a new economic
thinking ("economics 2.0") is needed compared to the purely selfish
"homo economicus," which is the basis of the current mainstream
economics (economics 1.0). Considering the impact of the own decisions on
others enables self-regulation, which can overcome the above mentioned
coordination failures and "tragedies of the commons." Interestingly,
suitable institutions such as certain social media -- combined with suitable
reputation systems -- can promote other-regarding decision-making. The quick
spreading of social media and reputation systems, in fact, indicates the
emergence of a superior organizational principle, which creates collective
intelligence by harvesting the value of diversity. Properly designed social
media allow diverse knowledge and skills to come together, thereby unleashing
creativity, social capital and productive value.

Hence, in
accordance with the paradigm of distributed control and self-regulation, a participatory market society is on the
rise. While the 20th century was an era of democratization of consumption, the
21st century can become an era of democratization of production. Next to today’s
companies, we see the emergence of an innovation ecosystem characterized by
flexible, participatory forms of production, which I term "projects".
Here, creative minds come together to realize joint project ideas. After
completing a project, everyone looks for another one, and so on. Social media
platforms such as Amazon Mechanical Turk
make it possible to bring ideas and skilled workers together. As a consequence,
this leads to a more direct participation of people in production processes
("prosumers"). Over time, there will be a much greater diversity of
products, tailored to individual needs. Thus, while computers will increasingly
replace our current types of routine and executive work, we will have an
opportunity to replace these jobs by more creative activities. Production by
large corporations will then be complemented by an innovation ecosystem made up
of millions of projects. The huge range of smartphone apps that low-cost
downloads from App stores have
enabled, gives just a first idea of ​​the unlimited possibilities for new
projects. Open access data and the Web2.0,
Web3.0, etc. will further accelerate
this development.

The new
algebra of prosperity and leadership

The 21st
century will be governed by fundamentally different principles than the 20th
century, and that's why we need to change our way of thinking about the world.
To understand this, it is important to recognize the following facts and
trends: information is ubiquitous and everywhere instantly available, such that
borders dissolve. The "second machine age" comes with extreme speed.
Most of our knowledge is outdated, and we can't learn quickly enough to fully
understand the changing world without the help of smart devices such as "social information technologies."
Many systems become more variable, less predictable, and less controllable.
Their increased connectivity implies a higher complexity. The increase in data
volumes means we are overloaded by data that ultimately needs to be converted
into information and then into actionable knowledge. Furthermore, the more data
we produce, the less likely can we keep secrets and the cheaper will data
become. This means that we will make less profits on data, but more on
algorithms that turn data sets into useful information and knowledge. In such a
world, ideas will become more powerful, and ethics more important. Digitally
literate people will be better informed than experts used to be, therefore,
classical hierarchies will dissolve. Moreover, data can be replicated as often
as we like. It's a virtually unlimited resource, which may help to overcome
conflicts that scarce resources used to imply. However, services and products
will be more individualized, personalized, and user-centric. Finally, what used
to be science fiction may become reality. The countries first recognizing these
new principles and turning them into their advantage will be leading. Those
failing to adapt to these trends in a timely manner will be in trouble. We may
just have 20 years for this -- a very short time considering that planning and
building a road often takes 30 years or more.

What does it
take to master our future?

So far,
no country in the world seems to be well prepared for the digital era.
Therefore, we urgently need an Apollo-like program, and the equivalent of a
Space Agency for ICT: an Innovation
Alliance with the mission to develop the institutions and information
infrastructures for the emerging digital society. This is crucial to master the
challenges of the 21st century in a smart way and to unleash the full potential
of information for our society. For illustration, it is helpful to recall the
factors that enabled the success of the automobile age: the invention of cars
and of systems of mass production; the construction of public roads, gas
stations, and parking lots; the creation of driving schools and driver
licenses; and last but not least, the establishment of traffic rules, traffic
signs, speed controls, and traffic police. All of this required many billions
each year. We invest a lot into the agricultural sector, the industrial sector,
and also the service sector. But are we investing enough into the emerging
digital sector?

What are
the technological infrastructures and the legal, economic and societal
institutions needed to make the digital age a big success? This question would
set the agenda of the Innovation Alliance. A partial answer is already clear:
we need trustworthy, transparent, open,
and participatory ICT systems, which are compatible with our values. For
example, it would make sense to establish the emergent "Internet of Things" as a Citizen Web. This would enable self-regulating systems through
real-time measurements of the state of the world, which would be possible with
a public information platform called the "Planetary Nervous System". It would also facilitate a
real-time measurement and search engine: an open and participatory"Google 2.0."

To
protect privacy, all data collected about individuals should be stored in a Personal Data Purseand, given informed
consent, processed in a decentralized way by third-partyTrustable Information Brokers, allowing everyone to control the
use of their sensitive data. A Micro-Payment
System would allow data providers, intellectual property right holders, and
innovators to get rewards for their services. It would also encourage the
exploration of new and timely intellectual property right paradigms ("Innovation Accelerator"). A
pluralistic, User-centric Reputation
System would promote responsible behavior in the virtual (and real) world.
It would even enable the establishment of a new value exchange system called
"Qualified Money," which
would overcome weaknesses of the current financial system by providing
additional adaptability.

A Global Participatory Platform would
empower everyone to contribute data, computer algorithms and related ratings,
and to benefit from the contributions of others (either free of charge or for a
fee). It would also enable the generation of Social Capital such as trust and cooperativeness, using
next-generation User-controlled Social
Media. A Job and Project Platform
would support crowdsourcing, collaboration, and socio-economic co-creation.
Altogether, this would build a quickly growing Information and Innovation Ecosystem, unleashing the potential of
data for everyone: business, politics, science, and citizens alike.

We could
also create a Digital Mirror World
to explore the likely risks and opportunities of prospective decisions.
Finally, Interactive Virtual Worlds
would realize the full creative potential within different socio-economic
settings and intellectual property right approaches. Social Information Technologies would help us to cope with the
diversity resulting from this and to benefit from it. Digital literacyand good education
will be more important than ever. But with the emerging "Internet of
Things" and participatory information platforms, we can unleash the power
of information and turn the digital society into an opportunity for everyone.
It just takes our will to establish the institutions required to make the
digital age a great success.

20 comments:

Great blogpost Dirk. I myself am an advocate for the monetization of personal data and the digitization of our economy. A lot of this has also been explained in detail by Jeremy Rifkin. I will be presenting my thoughts about these subjects at a future TedX event this month. We might have some overlapping commentaries....

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